Veeva Announces Fiscal 2019 First Quarter Results

May 24, 2018

Total Revenues of $195.5M, up 22% Year-over-year

Subscription Services Revenues of $156.0M, up 21% Year-over-year

PLEASANTON, Calif.--(BUSINESS WIRE)--
Veeva Systems Inc. (NYSE: VEEV), a leading provider of industry cloud
solutions for the global life sciences industry, today announced results
for its fiscal first quarter ended April 30, 2018. All results,
including prior periods, and guidance reflect the new revenue
recognition standard ASC 606.

“A strong focus on customer success and cloud innovation is fueling
Veeva’s momentum and helping to advance the industry,” said CEO Peter
Gassner. “Our entry into the data warehouse market with Veeva Nitro is a
major expansion of our industry cloud for life sciences. It gives
customers a modern cloud alternative to custom commercial data
warehouses and delivers the foundation they need for advanced analytics
and AI.”

Fiscal 2019 First Quarter Results:

Revenues: Total revenues for the first quarter were $195.5
million, up from $159.8 million one year ago, an increase of 22%
year-over-year. Subscription services revenues for the first quarter
were $156.0 million, up from $129.1 million one year ago, an increase
of 21% year-over-year.

Operating Income and Non-GAAP Operating Income(1):First quarter operating income was $44.0 million, compared to
$38.9 million one year ago, an increase of 13% year-over-year.
Non-GAAP operating income for the first quarter was $62.9 million,
compared to $52.1 million one year ago, an increase of 21%
year-over-year.

Net Income and Non-GAAP Net Income(1): First quarter
net income was $44.3 million, compared to $37.0 million one year ago,
an increase of 20% year-over-year. Non-GAAP net income for the first
quarter was $51.4 million, compared to $34.3 million one year ago, an
increase of 50% year-over-year.

Net Income per Share and Non-GAAP Net Income per Share(1):For the first quarter, fully diluted net income per share was
$0.29, compared to $0.24 one year ago, while non-GAAP fully diluted
net income per share was $0.33, compared to $0.23 one year ago.

“We’re pleased to have posted another quarter of results above our
guidance and delivered solid operating cash flow in Q1,” said CFO Tim
Cabral. “With a combination of disciplined execution and expanding
market opportunities, Veeva is well positioned for a long runway of
strong revenue growth and profitability.”

Recent Highlights:

Delivering the Next-Generation Commercial Data Warehouse —The
company introduced Veeva Nitro, a data warehouse built specifically
for the commercial side of life sciences. Veeva Nitro eliminates the
time and effort of custom data warehouse development and maintenance
with a ready-to-use cloud solution that continually improves over
time. With Veeva Nitro, the industry will now have the right
commercial data foundation for business intelligence (BI) and
artificial intelligence (AI).

Strong Uptake Across Veeva Development Cloud and Another Top 50
Standardizes —The company saw strength in Vault Clinical,
Vault Quality, and Vault RIM. A top 50 biopharmaceutical company
selected Vault eTMF, Vault Submissions, and Vault Submissions Archive
as its global standards for clinical and regulatory. Vault eTMF saw
its second highest sales quarter ever. And Vault CTMS crossed a
significant milestone with 10 live customers and 24 total, just over a
year since its release.

Continued Growth of Veeva Commercial Cloud —A top 50
biopharmaceutical company committed to expanding their use of Veeva
CRM across their European field organization to harmonize their
systems globally. Veeva CRM add-on products also continued to see
strong growth, with a top 20 biopharmaceutical company selecting Veeva
CRM Events Management to support their U.S. teams. Momentum for Veeva
CRM continued within small and mid-sized companies as well, with 14
new customers added in the quarter.

Financial Outlook:

Veeva is providing guidance for its fiscal second quarter ending July
31, 2018 as follows:

Total revenues between $203 and $204 million.

Non-GAAP operating income between $64 and $65 million(2).

Non-GAAP fully diluted net income per share between $0.33 and $0.34(2).

Veeva is providing guidance for its fiscal year ending January 31, 2019
as follows:

Total revenues between $826 and $830 million.

Non-GAAP operating income between $261 and $265 million(2).

Non-GAAP fully diluted net income per share between $1.36 and $1.38(2).

(1) This press release uses non-GAAP financial metrics that
are adjusted for the impact of various GAAP items. See the section
titled “Non-GAAP Financial Measures” and the tables entitled
“Reconciliation of GAAP to Non-GAAP Financial Measures” below for
details.

(2)Veeva is not able, at this time, to provide GAAP targets
for operating income and fully diluted net income per share for the
second fiscal quarter ending July 31, 2018 or fiscal year ending January
31, 2019 because of the difficulty of estimating certain items excluded
from non-GAAP operating income and non-GAAP fully diluted net income per
share that cannot be reasonably predicted, such as charges related to
stock-based compensation expense, capitalization of internal-use
software development expenses and the subsequent amortization of the
capitalized expenses. The effect of these excluded items may be
significant.

About Veeva Systems

Veeva Systems Inc. is a leader in cloud-based software for the global
life sciences industry. Committed to innovation, product excellence, and
customer success, Veeva has more than 625 customers, ranging from the
world’s largest pharmaceutical companies to emerging biotechs. Veeva is
headquartered in the San Francisco Bay Area, with offices in Europe,
Asia, and Latin America. For more information, visit veeva.com.

Forward-looking Statements

This release contains forward-looking statements, including the
quotations from management, the statements in “Financial Outlook,” and
other statements regarding Veeva’s future performance, market growth,
the benefits from the use of Veeva’s solutions, our strategies, and
general business conditions. Any forward-looking statements contained in
this press release are based upon Veeva’s historical performance and its
current plans, estimates and expectations and are not a representation
that such plans, estimates, or expectations will be achieved. These
forward-looking statements represent Veeva’s expectations as of the date
of this press announcement. Subsequent events may cause these
expectations to change, and Veeva disclaims any obligation to update the
forward-looking statements in the future. These forward-looking
statements are subject to known and unknown risks and uncertainties that
may cause actual results to differ materially, including (i) breaches in
our security measures or unauthorized access to our customers’ data; (ii)our
expectation that the future growth rate of our revenues will decline;
(iii)fluctuation of our results, which may make
period-to-period comparisons less meaningful; (iv) competitive factors,
including but not limited to pricing pressures, consolidation among our
competitors, entry of new competitors, the launch of new products and
marketing initiatives by our existing competitors, and difficulty
securing rights to access, host or integrate with complementary third
party products or data used by our customers; (v) the rate of adoption
of our newer solutions and the results of our efforts to sustain or
expand the use and adoption of our more established applications, like
Veeva CRM; (vi) loss of one or more customers, particularly any of our
large customers; (vii) system unavailability, system performance
problems, or loss of data due to disruptions or other problems with our
computing infrastructure; (viii) failure to sustain the level of
profitability we have achieved in the past as our costs increase;
(ix) adverse changes in economic, regulatory, or market conditions,
particularly in the life sciences industry, including as a result of
customer mergers; (x) our ability to attract and retain highly skilled
employees and manage our growth effectively; (xi) a decline in new
subscriptions that may not be immediately reflected in our operating
results due to the ratable recognition of our subscription revenue; and
(xii) pending, threatened, or future legal proceedings and related
expenses.

Additional risks and uncertainties that could affect Veeva’s financial
results are included under the captions, “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in the company’s filing on Form 10-K for the period ended
January 31, 2018. This is available on the company’s website at veeva.com
under the Investors section and on the SEC’s website at sec.gov.
Further information on potential risks that could affect actual results
will be included in other filings Veeva makes with the SEC from time to
time.

VEEVA SYSTEMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

April 30,

January 31,

2018

2018

*As Adjusted

Assets

Current assets:

Cash and cash equivalents

$

460,239

$

320,183

Short-term investments

458,069

441,779

Accounts receivable, net

154,840

224,668

Unbilled accounts receivable

17,635

13,348

Prepaid expenses and other current assets

12,045

12,443

Total current assets

1,102,828

1,012,421

Property and equipment, net

51,500

52,284

Deferred costs, net, noncurrent

29,338

30,306

Goodwill

95,804

95,804

Intangible assets, net

29,644

31,490

Deferred income taxes, noncurrent

2,189

2,222

Other long-term assets

6,352

5,806

Total assets

$

1,317,655

$

1,230,333

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

9,023

$

6,944

Accrued compensation and benefits

15,380

17,054

Accrued expenses and other current liabilities

12,263

13,152

Income tax payable

—

2,080

Deferred revenue

289,560

266,939

Total current liabilities

326,226

306,169

Deferred income taxes, noncurrent

9,737

10,949

Other long-term liabilities

7,255

6,977

Total liabilities

343,218

324,095

Stockholders’ equity:

Class A common stock

1

1

Class B common stock

—

—

Additional paid-in capital

539,665

515,272

Accumulated other comprehensive income

1,096

1,600

Retained earnings

433,675

389,365

Total stockholders’ equity

974,437

906,238

Total liabilities and stockholders’ equity

$

1,317,655

$

1,230,333

_______

* Prior-period information has been restated for the adoption of ASU
2014-09, “Revenue from Contracts with Customers” (Topic 606), and
ASU 2018-02, “Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income,” both of which were adopted
on February 1, 2018.

* Prior-period information has been restated for the adoption of ASU
2014-09, “Revenue from Contracts with Customers” (Topic 606), and
ASU 2016-18, “Statement of Cash Flows, Restricted Cash,” both of
which were adopted on February 1, 2018.

Non-GAAP Financial Measures

In Veeva’s public disclosures, Veeva has provided non-GAAP measures,
which it defines as financial information that has not been prepared in
accordance with generally accepted accounting principles in the United
States, or GAAP. In addition to its GAAP measures, Veeva uses these
non-GAAP financial measures internally for budgeting and resource
allocation purposes and in analyzing its financial results. For the
reasons set forth below, Veeva believes that excluding the following
items from its non-GAAP financial measures provides information that is
helpful in understanding its operating results, evaluating its future
prospects, comparing its financial results across accounting periods,
and comparing its financial results to its peers, many of which provide
similar non-GAAP financial measures.

Stock-based compensation expenses. Veeva excludes stock-based
compensation expenses from its non-GAAP measures primarily because
they are non-cash expenses that Veeva excludes from its internal
management reporting processes. Veeva’s management also finds it
useful to exclude these expenses when they assess the appropriate
level of various operating expenses and resource allocations when
budgeting, planning and forecasting future periods. Moreover, because
of varying available valuation methodologies, subjective assumptions
and the variety of award types that companies can use under FASB ASC
Topic 718, Veeva believes excluding stock-based compensation expenses
allows investors to make meaningful comparisons between our recurring
core business operating results and those of other companies.

Amortization of purchased intangibles. Veeva incurs amortization
expense for purchased intangible assets in connection with
acquisitions of certain businesses and technologies. Amortization of
intangible assets is a non-cash expense and is inconsistent in amount
and frequency because it is significantly affected by the timing, size
of acquisitions and the inherent subjective nature of purchase price
allocations. Because these costs have already been incurred and cannot
be recovered, and are non-cash expenses, Veeva excludes these expenses
for its internal management reporting processes. Veeva’s management
also finds it useful to exclude these charges when assessing the
appropriate level of various operating expenses and resource
allocations when budgeting, planning and forecasting future periods.
Investors should note that the use of intangible assets contributed to
Veeva’s revenues earned during the periods presented and will
contribute to Veeva’s future period revenues as well.

Capitalization of internal-use software development expenses and the
subsequent amortization of the capitalized expenses. Veeva capitalizes
certain costs incurred for the development of computer software for
internal use and then amortizes those costs over the estimated useful
life. Capitalization and amortization of software development costs
can vary significantly depending on the timing of products reaching
technological feasibility and being made generally available. Veeva’s
internal management reporting processes exclude both the
capitalization of software (which would otherwise result in a
reduction in net research and development operating expenses) and the
amortization of capitalized software (which would otherwise result in
an increase in cost of subscription revenues) when preparing budgets,
plans and reviewing internal performance. Moreover, because of the
variety of approaches taken and the subjective assumptions made by
other companies in this area, Veeva believes that excluding the
effects of capitalized software costs allows investors to make more
meaningful comparisons between our operating results and those of
other companies.

Deferred compensation associated with the Zinc Ahead business
acquisition. The Zinc Ahead share purchase agreement, as revised,
called for share purchase consideration to be deferred and paid at a
rate of one-third of the deferred consideration amount per year to
certain former Zinc Ahead employee shareholders and option holders who
remain employed with Veeva on each deferred consideration payment
date. In accordance with GAAP, these payments are being accounted for
as deferred compensation and the expense is recognized over the
requisite service period. Veeva’s management views this deferred
compensation expense as an unusual acquisition cost associated with
the Zinc Ahead acquisition and finds it useful to exclude it in order
to assess the appropriate level of various operating expenses to
assist in budgeting, planning and forecasting future periods. Veeva
believes excluding this deferred compensation expense from its
non-GAAP measures may allow investors to make more meaningful
comparisons between its recurring operating results and those of other
companies.

Income tax effects on the difference between GAAP and non-GAAP costs
and expenses. The income tax effects that are excluded from the
non-GAAP measures relate to the imputed tax impact on the difference
between GAAP and non-GAAP costs and expenses due to stock-based
compensation, purchased intangibles, capitalized internal-use
software, and deferred compensation associated with the Zinc Ahead
business acquisition for GAAP and non-GAAP measures.

There are limitations to using non-GAAP financial measures because
non-GAAP financial measures are not prepared in accordance with GAAP and
may be different from non-GAAP financial measures provided by other
companies. The non-GAAP financial measures are limited in value because
they exclude certain items that may have a material impact upon our
reported financial results. In addition, they are subject to inherent
limitations as they reflect the exercise of judgments by Veeva’s
management about which items are adjusted to calculate its non-GAAP
financial measures. Veeva compensates for these limitations by analyzing
current and future results on a GAAP basis as well as a non-GAAP basis
and also by providing GAAP measures in its public disclosures.

Non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, financial information prepared in accordance
with GAAP. Veeva encourages its investors and others to review its
financial information in its entirety, not to rely on any single
financial measure to evaluate its business, and to view its non-GAAP
financial measures in conjunction with the most directly comparable GAAP
financial measures. A reconciliation of GAAP to the non-GAAP financial
measures has been provided in the tables below.

The following tables reconcile the specific items excluded from GAAP
metrics in the calculation of non-GAAP metrics for the periods shown
below:

VEEVA SYSTEMS INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Dollars in thousands)

(Unaudited)

Three months endedApril 30,

2018

2017

*As Adjusted

Cost of subscription services revenues on a GAAP basis

$

29,913

$

26,138

Stock-based compensation expense

(345

)

(342

)

Amortization of purchased intangibles

(901

)

(1,055

)

Amortization of internal-use software

(156

)

(121

)

Cost of subscription services revenues on a non-GAAP basis

$

28,511

$

24,620

Gross margin on subscription services revenues on a GAAP basis

80.8

%

79.8

%

Stock-based compensation expense

0.2

0.3

Amortization of purchased intangibles

0.6

0.7

Amortization of internal-use software

0.1

0.1

Gross margin on subscription services revenues on a non-GAAP basis

81.7

%

80.9

%

Cost of professional services and other revenues on a GAAP basis

$

30,242

$

22,739

Stock-based compensation expense

(2,328

)

(1,689

)

Deferred compensation associated with Zinc Ahead acquisition

(5

)

(6

)

Cost of professional services and other revenues on a non-GAAP basis

$

27,909

$

21,044

Gross margin on professional services and other revenues on a GAAP
basis

23.5

%

25.8

%

Stock-based compensation expense

5.9

5.5

Gross margin on professional services and other revenues on a
non-GAAP basis

29.4

%

31.3

%

Gross profit on a GAAP basis

$

135,392

$

110,895

Stock-based compensation expense

2,673

2,031

Amortization of purchased intangibles

901

1,055

Amortization of internal-use software

156

121

Deferred compensation associated with Zinc Ahead acquisition

5

6

Gross profit on a non-GAAP basis

$

139,127

$

114,108

Gross margin on total revenues on a GAAP basis

69.2

%

69.4

%

Stock-based compensation expense

1.4

1.3

Amortization of purchased intangibles

0.4

0.6

Amortization of internal-use software

0.1

0.1

Gross margin on total revenues on a non-GAAP basis

71.1

%

71.4

%

Research and development expense on a GAAP basis

$

37,197

$

28,311

Stock-based compensation expense

(4,667

)

(3,802

)

Capitalization of internal-use software

230

790

Deferred compensation associated with Zinc Ahead acquisition

(109

)

(109

)

Research and development expense on a non-GAAP basis

$

32,651

$

25,190

Sales and marketing expense on a GAAP basis

$

34,385

$

30,141

Stock-based compensation expense

(4,088

)

(3,847

)

Amortization of purchased intangibles

(947

)

(947

)

Deferred compensation associated with Zinc Ahead acquisition

(15

)

(18

)

Sales and marketing expense on a non-GAAP basis

$

29,335

$

25,329

General and administrative expense on a GAAP basis

$

19,854

$

13,580

Stock-based compensation expense

(5,583

)

(2,108

)

Deferred compensation associated with Zinc Ahead acquisition

—

(4

)

General and administrative expense on a non-GAAP basis

$

14,271

$

11,468

_______

* Prior-period information has been restated for the adoption of ASU
2014-09, “Revenue from Contracts with Customers” (Topic 606),
which was adopted on February 1, 2018.

VEEVA SYSTEMS INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)

(Dollars in thousands, except per share data)

(Unaudited)

Three months endedApril 30,

2018

2017

*As Adjusted

Operating expense on a GAAP basis

$

91,436

$

72,032

Stock-based compensation expense

(14,338

)

(9,757

)

Amortization of purchased intangibles

(947

)

(947

)

Capitalization of internal-use software

230

790

Deferred compensation associated with Zinc Ahead acquisition

(124

)

(131

)

Operating expense on a non-GAAP basis

$

76,257

$

61,987

Operating income on a GAAP basis

$

43,956

$

38,863

Stock-based compensation expense

17,011

11,788

Amortization of purchased intangibles

1,848

2,002

Capitalization of internal-use software

(230

)

(790

)

Amortization of internal-use software

156

121

Deferred compensation associated with Zinc Ahead acquisition

129

137

Operating income on a non-GAAP basis

$

62,870

$

52,121

Operating margin on a GAAP basis

22.5

%

24.3

%

Stock-based compensation expense

8.7

7.3

Amortization of purchased intangibles

0.9

1.3

Capitalization of internal-use software

(0.1

)

(0.5

)

Amortization of internal-use software

0.1

0.1

Deferred compensation associated with Zinc Ahead acquisition

0.1

0.1

Operating margin on a non-GAAP basis

32.2

%

32.6

%

Net income on a GAAP basis

$

44,310

$

36,996

Stock-based compensation expense

17,011

11,788

Amortization of purchased intangibles

1,848

2,002

Capitalization of internal-use software

(230

)

(790

)

Amortization of internal-use software

156

121

Deferred compensation associated with Zinc Ahead acquisition

129

137

Income tax effect on non-GAAP adjustments(4)

(11,867

)

(15,991

)

Net income on a non-GAAP basis

$

51,357

$

34,263

Diluted net income per share on a GAAP basis

$

0.29

$

0.24

Stock-based compensation expense

0.11

0.08

Amortization of purchased intangibles

0.01

0.02

Capitalization of internal-use software

—

—

Amortization of internal-use software

—

—

Deferred compensation associated with Zinc Ahead acquisition

—

—

Income tax effect on non-GAAP adjustments(4)

(0.08

)

(0.11

)

Diluted net income per share on a non-GAAP basis

$

0.33

$

0.23

_______

* Prior-period information has been restated for the adoption of ASU
2014-09, “Revenue from Contracts with Customers” (Topic 606),
which was adopted on February 1, 2018.

(4) For the three months ended April 30, 2018, management
used an estimated annual effective non-GAAP tax rate of 21.0%. In the
same period last year, management used an estimated annual effective
non-GAAP tax rate of 35.0%.